–Another day; another columnist paid by the 1% to write nonsense.

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity breeds austerity and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Here is yet another example of pitiful, self-styled “experts” who have no idea what they are talking about, so they use intuition and popular belief to support what should be science. If anyone reads Robert J. Samuelson’s columns, you might try to clue him in (though I suspect you will fail in the attempt).

Bye-bye, Keynes?
By Robert J. Samuelson, Published: December 18, Washington Post

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” — John Maynard Keynes, 1936

This quote from Keynes is hilarious in context. Samuelson printed the quote and as you will see, he doesn’t realize it refers to him!

When Keynes wrote “The General Theory of Employment, Interest and Money” in the mid-1930s, governments in most wealthy nations were relatively small and their debts modest. Deficit spending and pump priming were plausible responses to economic slumps.

They also were on a gold standard, and so were monetarily non-sovereign. The U.S. is Monetarily Sovereign. Samuelson doesn’t understand the difference.

Standard Keynesian remedies for downturns — spend more and tax less — presume the willingness of bond markets to finance the resulting deficits at reasonable interest rates. If markets refuse, Keynesian policies won’t work.

True for monetarily non-sovereign nations; not true for Monetarily Sovereign nations.

Countries then lose control over their economies. They default on maturing debts or must be rescued with loans from friendly countries, the International Monetary Fund (IMF), government central banks (the Federal Reserve, the European Central Bank) or someone. There are other reasons why Keynesian policies might fail or be weakened. But they pale by comparison with the potential veto now posed by bond markets. Ironically, the past overuse of deficits compromises their present utility to fight high unemployment.

Not only does Samuelson not understand the differences between the Monetarily Sovereign U.S. and the monetarily non-sovereign PIIGS, but he thinks the Federal Reserve has to rescue the U.S. by lending it money! Yikes!

Excuse me, Mr. Samuelson, but how do you think the Federal Reserve gets dollars? Total ignorance of federal finances, yet he writes a weekly economics column in a major newspaper.

And by the way, how does one “fight high unemployment” by reducing deficit spending? Can’t be done.

There is no automatic tipping point beyond which a country’s debt — the sum of past annual deficits — causes bond markets to shut down. But Greece, Portugal and Ireland have already reached that point, with gross debt in 2011 equal to 166 percent, 106 percent and 109 percent of their national incomes (gross domestic product), according to IMF figures. Heavily indebted Italy and Spain could lose access to bond markets.

Thankfully, the United States is not now in this position. Interest rates on 10-year Treasury bonds hover around 2 percent; investors seem willing to lend against massive U.S. deficits. Just why is unclear. It’s not that U.S. budget discipline is noticeably superior.

Mr. Samuelson, it’s “unclear” to you because you have no understanding of economics. Lenders buy Treasury bonds because the U.S. has the unlimited ability to service them. The PIIGS do not.

. . . some economists urge more “stimulus.” In a paper, Christina Romer — former head of President Obama’s Council of Economic Advisers — argued that scholarly studies support the administration’s view that its $787 billion stimulus in 2009 cushioned the recession. Another big stimulus “would be very helpful . . . to really create a lot of jobs.”

I am less sure. For the record, I supported Obama’s stimulus — though disliking some details — and, under similar circumstances, would again. The economy was in a tailspin; the stimulus provided a psychological and spending boost. But how much is less clear. As Romer notes, estimating the effect is “incredibly hard.” For example, the Congressional Budget Office’s estimate of added jobs from the stimulus ranged from 700,000 to 3.3 million for 2010.

Suppose a new stimulus — beyond renewal of the payroll tax cut — did succeed at significant job creation. By piling up more debt, it would still risk aggravating a larger crisis later. There is no long-term plan to curb deficits. Americans seem to think they’re invulnerable to a bond market backlash.

The U.S. has no need to issue bonds, so is invulnerable to any sort of bond market “backlash.” If no one wanted U.S. bonds, this would not affect by even one penny, the federal government’s ability to spend.

Economist Barry Eichengreen, a leading scholar of the Great Depression, is dubious:

“Given low interest rates and the still-weak U.S. economy, it will be tempting for the U.S. government to continue running deficits and issuing additional debt. At some point, however, investors will recognize this behavior for the Ponzi scheme it is. … If history is any guide, this scenario will develop not gradually but abruptly. Previously gullible investors will wake up one morning and conclude that the situation is beyond salvation. They will scramble to get out. Interest rates in the United States will shoot up. The dollar will fall. The United States will suffer the kind of crisis that Europe experienced in 2010, but magnified.”

Total, unmitigated bullsh*t. Messrs. Samuelson and Eichengreen, you acknowledge stimulus does create jobs but you think it’s a Ponzi scheme?? Do you even know what a Ponzi scheme is? (It’s a system by which later investors pay earlier investors, collapsing when there are not enough later investors.) By contrast, federal debt is paid by federal money creation, which a Monetarily Sovereign nation can do, endlessly. No later investors are asked to pay earlier investors.

Governments have ceded power to bond markets by decades of shortsighted behavior. The political bias is to favor short-term stimulus (by lowering taxes and raising spending), which is popular, and to ignore long-term deficits (by cutting spending and raising taxes), which is unpopular.

Of course it’s “unpopular.” It destroys an economy.

Debt has risen to hazardous levels, undermining Keynesian economics as taught in standard texts. Were Keynes alive now, he would almost certainly acknowledge the limits of Keynesian policies. High debt complicates the analysis and subverts the solutions. What might have worked in the 1930s offers no panacea today.

Right, and what couldn’t work in the 1930’s is exactly what would work today. What most certainly cannot, does not, and will not work is deficit reduction and austerity.

You can add the names Robert J. Samuelson and Barry Eichengreen to the flat-earth society membership roll.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports


22 thoughts on “–Another day; another columnist paid by the 1% to write nonsense.

  1. ” Interest rates on 10-year Treasury bonds hover around 2 percent; investors seem willing to lend against massive U.S. deficits. Just why is unclear.”
    That line says it all 🙂 If it was unclear, then why did you write this article, Mr. Samuelson. Why don’t you research on it and then come back and write.

    I still think the 1% (which includes the Pres, Dems & Repub in House & Senate) all know how Monetary Sovereignty works and are using it to their advantage but wouldn’t want to let the 99% of us in on the secret.
    Just yesterday, they passed a $1 Trillion bill. No questions asked.

    Wonder why they are so much into cutting Social Security & Medicare and increasing taxes for the 99% of us? That’s what I am unable to figure out.
    How does it benefit the 1% when SS & Medicare is cut for the poor and why do they want it to happen?


    1. Netbacker,

      The larger the gap, the greater is their comparative power. Cutting SS & Medicare increases the gap.

      Think of your assets totaling just $50K, while everyone else has $0. You would be the richest man in the world — the king.

      Rodger Malcolm Mitchell


  2. I wrote a letter to the editor of the Post. Also, my letter to the West Valley View has been published: http://www.westvalleyview.com/main.asp?SectionID=6&SubSectionID=143&ArticleID=41181&TM=68445.4#item4

    to the Post:

    I would urge Robert J. Samuelson to investigate Modern Monetary Theory, aka Post-Keynesian Thought. It explains why the US (and Japan and the UK) are not at all like Greece and the other Euro countries. It explains why the world accepts the debt of those Monetarily Sovereign countries and not that of the Monetarily non-sovereign ones, if they overspend. It explains why a country that controls its own currency can never be “held hostage” by bond markets, can never be forced into default, and can never be unable to afford its interest payments denominated in its own currency. It explains why a currency issuer such as the US government is capable of full employment with price stability, and a currency user like Arizona or Italy is not, without financial support from outside its borders. It explains why today is different from the 1930’s, and why we have policy options today that we did not have under the gold standard, and which the Euro countries do not have. Some helpful web sites include http://neweconomicperspectives.blogspot.com/p/modern-money-primer.html and http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    P.S. If you want to get an interesting debate going, I’m sure you could persuade Dr. Wray or Warren Mosler to write a more lengthy rebuttal to this piece, or even to make regular contributions to your op-ed pages.


    1. RMM really GREAT article.
      J O’C also, but one simple question.
      RE : “It explains why a country that controls its own currency can never be “held hostage” by bond markets, can never be forced into default, and can never be unable to afford its interest payments denominated in its own currency.”
      This is what I believe is the FATAL FLAW that make AMERICA a “NON-Monatery Sovereignty” and that is
      “It pays compound interest to a private party for the use of its own money.This “most powerful weapon in the universe” is more unstopable than the printing.You can pause printing but you cannot pause compound interest without complete surrender” Private banks are allowed to “create money” by fractionation of money on hand and use that
      newly created money to gain more money. A cycle that commands total money control or it must bust. The real kicker is that the borrower by today’s system guarantees the lender they will not lose their money by covering any of their losses. The taxpayers are guarantors of their own servitude !


        1. Yes,Federal borrowing is unnecessary.Agreed.But does that mean it is agreed that since the government is in fact paying interest,compound at that, it is a “flawed Monatery Sovereignty “? And until it prints its way out of interest paying,it will be in servitude to the interest receivers.
          This is perhaps our most basic point of disagreement This is why the Federal Reserve should be a BANK,charging interest to maintain the quality and control of the usage of unlimited printing allowed,being absolutly transparent (read open mike,open video at all and every meeting of more than two members).
          Once again I beg of you and your readers.


      1. Spending on interest is like any other spending in that it supports the growth of the economy. It has a different distributional effect than some other spending, in that to the extent that it goes to individuals rather than pension funds, it goes more to people with more assets (although I suppose anyone with a pension plan now must be considered part of the 1%, no?); however, the progressive income tax more than offsets that, I would think. There might be some benefit to a near-zero interest rate, but paying interest on debt is not harmful to a monetarily sovereign government, at least at realistic interest rates and debt to GDP ratios.

        I think there does have to be some Treasury debt outstanding, though, and not in the hands of the Fed, in order for the Fed to control the interest rate. Unless somebody can invent some other way to do it.


        1. “The Fed can control the rate at which it lends to banks for reserves.”

          That’s one side of it. What if the inter-bank rate falls below the Fed’s target? There needs to be a way to drain reserves as well as to add them.

          I suppose the Fed could hold “all” of the outstanding t-bills, and sell them to drain reserves and raise rates. But if Treasury is not issuing new ones, then eventually they will run out. The Fed could be authorized to issue them itself, and that might work, but that would be a new paradigm.


        2. Right. In fact, high interest rates are economically stimulative. See: https://rodgermmitchell.wordpress.com/2009/09/09/low-interest-rates-do-not-help-the-economy/

          The Fed can drain reserves by paying interest on reserves, which places a minimum on the Fed Funds rate.

          By the way, MMT favors an ongoing 0% FF rate. I don’t, and never have understood the logic other than 0% is the “natural” rate — whatever that means.

          Another slight difference between MMT and Monetary Sovereignty.

          Rodger Malcolm Mitchell


  3. And to think that people of this sort have been advising presidents and prime ministers and we still have an economy is mind boggling.

    But in the words of Forest Gump “stupid is as stupid does”.


    1. RMM,justa . . .

      ” . . . ,it will be in servitude to the interest receivers.”

      If you believe that, buy a T-bill. Then the government will be “in servitude” to you. Now, what will you order your servant to do?

      In response to your challenge:
      First I would have to print all the money needed to purchase all the fractional loans made by the lenders as well as all the bonds made by the Feds in order to be in the position to have all the “most powerful force in the universe” that is presently out there. THEN I WOULD SIMPLY COMMAND THAT I AM THE ONLY POWER THAT CAN CIRCULATE CURRENCY AND I WILL CHARGE INTEREST TO PROFIT FROM MY POWER.
      Please do not ask what I would do with that (unneeded ) profit. How about;eliminate taxes,help the general welfare,etc. SOUND’S LIKE “THE ALL INCLUSIVE SOLUTION”
      that a Monatery Sovereignty needs to apply !
      Thank You for your help.


  4. RMM,
    J O’C,
    Where is the challenge ?
    JO”C said,” but paying interest on debt is not harmful to a monetarily sovereign government, at least at realistic interest rates and debt to GDP ratios.”

    FIRST:There should be no debt,if the nation is in fact Monetary Sovereign.PERIOD. It issues (circulates) its own money,both time and quantity is limitless.
    Second:interest on debt or interest as a cost to circulated or issue is so hamful that it may even be a condition that would void the status as a Monetary Sovereign nation.
    Compound interest absorbs all the principal and by nature forces the interest to be created in order not to defauklt.
    America ihas a deficit of close to $15 trillion which is basically the accumulated total of INTEREST OWED !
    Justaluckyfool asks ,”how was the feds abale to dole out $16 TRILLION without breaking the “DEBT CEILING” ?
    The answer as strange as it may seem,may be that becuse it was money from what is still partially a monetary sovereignty put into circulation withoutthe “toxic” interest attached.
    PLEASE SLAM MY THEORY (hypothesis).I will suffer your slings and arrows with the understanding that I would be grateful to be shown how to improve.
    http://www.justaluckyfool.wordpress.com “The All Inclusive Solution”.


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